This paper aimed to evaluate issues resulted from the comprehensive regulatory framework on financial investment products under the Financial Investment Service and Capital Market Act (FISCMA). Specifically, it focused on the policy intent and the principles of comprehensive regulatory framework, the comprehensive legal definition of financial investment products, the distinction between securities and derivatives, and the definition of derivatives combined securities and investment contract securities with a particular emphasis on the practical application.
The policy intent of the comprehensive regulatory framework under the FISCMA was expanding the business scope of financial investment services providers while strengthening investor protection simultaneously. However, the principal limit, which governs the issuance and transfer of securities inscribed in the statutory law restricted the business scope of financial investment services providers. Further, the introduction of comprehensive regulatory framework saw a little deterioration in investor protection due to the increased level of issuances in long-term commercial paper. In addition, accomadative policy options for the ease of corporate funding were not fully addressed in the enactment of the FISCMA, which will increasingly necessitate further discussion.
Despite some criticism from the academic world, the comprehensive legal definition of financial investment products was rather well received in the government practice. However, the lack of exemptions, which were witnessed in the US, the UK, Australia, etc from certain clauses requiring interpretation and application of the comprehensive legal definition increased regulatory uncertainties and burden on both the regulators and the regulated entities.
The obligation for additional payments, which was the only criterion provided to distinguish derivatives from securities under the FISCMA, caused difficulties in the practical setting, particularly in the area of options and warrants. It was noted that the single criterion approach has been facing challenges due to the increasing demand on clear distinction between securities and derivatives as the regulatory requirements on derivatives has been heightened since the Global Financial Crisis.
Various issues raised from derivatives combined securities and investment contract securities were also considered in relation to the application of the comprehensive legal definition of securities under the FISCMA. A particular consideration was given to the issuance and sales of derivatives combined securities as separate regulations govern them with different policy intent. It was noted that investment contract securities and the likes can cause further issues when combined with crowdfunding due to the lack of transferability.
Finally, the contents and policy intent of the amendment to the FISCMA in 2013 along with the revised bills and its subordinate regulations, which aimed to clarify and supplement the comprehensive regulatory framework on financial investment products, are detailed with referece to the changes in the definition of financial investment products and in the classification criterion between securities and derivatives. Further, some issues arising from the amendments in the scope of the derivatives combined securities, investment contract securities, etc with reference to the amendment to Commercial Law in 2011 and the new legislation on crowdfunding, which is currently being discussed in the National Assembly, are also considered.